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Employers get creative on Rx costs

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NEW YORK—Some benefit managers are exploring innovative ways to manage their pharmacy benefits, demanding enhanced performance from their pharmacy benefit managers and changing their employees' approach to managing their own health care.

By obtaining more program information from PBMs, structuring programs to promote the use of generics over brand name drugs, and promoting stricter adherence to health regimens, employers can gain greater control over their pharmacy costs, benefit managers say.

Cleveland-based KeyCorp, a commercial banking and financial services company, sought performance guarantees during negotiations with its new PBM—Franklin Lakes, N.J.-based Medco Health Solutions Inc., said Toby Fleischman, vp, compensation and benefits for KeyCorp.

For example, the company obtained performance guarantees on generic dispensing rates based on individual classes of drugs rather than overall generic rates, she said. While getting the guarantees was "a bit of a fight," it was necessary because the company did not want increases in one drug category to affect the average generic dispensing rate, which would limit the effectiveness of performance guarantees, Ms. Fleischman said.

Instead, individual guarantees require Medco to develop effective and targeted programs to promote generic use among KeyCorp's employees, she told the 2007 Employee Healthcare Conference, presented by the Conference Board and sponsored by Towers Perrin HR Services.

"They need to ensure that enough generics get out the door to make sure our costs are controlled," Ms. Fleischman said.

Transparency and pass-through of all discounts, dispensing fees and rebates were issues for KeyCorp. While the company was able to secure some transparency guarantees from its PBM, full transparency is still difficult for plan sponsors wanting to know all about the relationship between their PBM and pharmaceutical companies, how the PBM is compensated and how that affects formulary decisions, Ms. Fleischman said.

Becoming more involved in formulary decisions will be a key priority for Waltham, Mass.-based Thermo Fisher Scientific Inc. in 2007, said Jim McGrail, director of corporate benefits.

The company plans to review new drugs quarterly, meaning benefits officials no longer will simply sign off on decisions made by Medco. This is a "tough" issue because the PBM is not used to having employers involved in discussions about whether drugs should be added to the formulary, he said. "It will be much more restricted," Mr. McGrail said. "It's not automatic to add a drug."

Changing employees' approach to managing their health also is a key factor in managing pharmacy benefits, employers say.

Prior to the November merger that created the current Thermo Fisher, Fisher Scientific encouraged healthy behavior among its employees in an effort that included eliminating copayments for generic asthma and diabetes drugs. By doing so, the company sent a "clear message" to employees about the importance of taking care of their health and adhering to treatment regimens, Mr. McGrail said.

Although Thermo Fisher expects an increase in the costs of asthma and diabetes medications, it also expects total medical spending to fall due to fewer emergency room visits and other reduced costs, he said. The company plans to evaluate the outcomes of its diabetes and asthma management programs to see if they should be refined or expanded, he said.

KeyCorp also redesigned its pharmacy program to introduce consumerism and manage costs, Ms. Fleischman said. The company implemented a 10% coinsurance for generic drugs with no minimum out-of-pocket contributions. Under the new system, employees have paid as little as 50 cents for generic drug prescriptions, she said.

The company has 30% coinsurance levels for preferred and nonpreferred brand-name drugs, but the out-of-pocket minimum contributions are higher for nonpreferred brand drugs, which promotes consumerism, she said.

KeyCorp estimates the cost of lowering generic drug coinsurance at about $570,000, but company officials said the migration from brand-name drugs to generics as well as the employee trust earned through the program is important, Ms. Fleischman said.